Banks' Loan Losses Mounting
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U.S. stocks tumbled to a two-month low last week after banks reported mounting losses from bad home loans and Cisco Systems said corporate spending on computer equipment may falter.
Citigroup shares fell to the lowest since March 2003. The biggest U.S. bank said its mortgage-backed bonds and related securities may have lost $11 billion in value. Morgan Stanley also disclosed losses, while the New York attorney general expanded a probe into home-loan appraisals linked to Washington Mutual.
Citigroup, Morgan Stanley and other top banks have written down more than $40 billion after late payments on home loans rose to a five-year high and foreclosures set a record.
"Every day it's a new bank that comes out with a write-off," said Jeremy A. Blackman, a research analyst at Hester Capital Management. "If the credit markets dry up and the economy starts to slow, that's going to transfer over to consumer spending and business spending."
Cisco led technology stocks in the Standard & Poor's 500-stock index to the steepest weekly decline since July 2002. The world's largest maker of networking gear said a "dramatic" decline in sales to car and financial companies is curbing growth. Qualcomm slid after the mobile-phone chipmaker reduced its profit forecast.
The S&P 500 retreated 3.7 percent this week to 1453.70. The Dow Jones industrial average dropped 4.1 percent to 13,042.74. The Nasdaq composite index slumped 6.5 percent, the biggest weekly drop since April 2002, to 2627.94.
The yield on two-year Treasury notes tumbled 0.25 points to 3.43 percent, the lowest since February 2005, on increased bets that the Federal Reserve would lower interest rates in December and January. The benchmark 10-year note's yield declined 0.10 points to 4.22 percent, the lowest since September 2005.
Technology shares, which entered the week with the second-biggest gain among 10 industries in the S&P 500 this year, erased almost half of their 2007 advance.
Firms scheduled to report earnings this week include Wal-Mart, Home Depot and Starbucks.
The Treasury will sell $20 billion of three-month bills and $19 billion of six-month bills on Tuesday. They yielded 3.29 percent and 3.59 percent, respectively, in when-issued trading. Details of the Wednesday auction of four-week bills will also be announced Tuesday.
-- Bloomberg News
